The impact of the Euro zone debt crisis and the slowdown in
China and India are adversely affecting economic growth in South
Africa, with forecasts that the projected growth of 2.7 percent
will not be achieved in the current fiscal year.
As the Euro zone is South Africa's largest trading partner,
the decreased demand for South African exports has resulted in a
deteriorating economic performance, an increase in the trade
deficit and more sombre approach to the economy. The National
Treasury forecasts GDP growth at only three percent for 2013.
With fiscal deficits increasing, and the National Development
plan's approval, the tax authorities are under increasing
pressure to hunt and collect from a smaller pool of taxpayers. The
result has been an increase in tax audits and disputes, creating an
uncertain landscape for taxpayers.
This trend is by no means unique to South Africa – tax
authorities around the world are becoming more aggressive in
pursuing corporate taxpayers. The introduction of the Tax
Administration Act hints at these tensions. It provides the tax
authorities with substantially more invasive powers (for example
search and seizure of documents without a warrant and criminal
sanctions on not providing information timeously). Taxpayers who
are subjected to an audit would be well advised to treat these
exposures proactively and understand their rights in terms of the
Tax Administration Act as well as Administrative and Constitutional
Taxpayers face a challenging and complex tax environment. The
tax authorities will continue to audit large corporate taxpayers
regularly. The frequency and intensity of the audit may vary
directly with the risk ascribed to the particular taxpayer and the
perceived aggressive tax planning implemented. Even where these
transactions comply with the letter of the law, they may be
regarded as tax aggressive if they do not comply with the
"spirit" of the law and, if that is the case, are bound
to be challenged. South Africa ranks amongst the best in the world
in the financial and legal sector, auditing standards and business
sophistication. With Africa widely viewed as the last frontier of
continents providing real growth, the foreign investor would be
well placed to promote strong corporate governance regarding their
No doubt, the upcoming 2013 budget speech will allude to how the
tax authorities will source the additional revenue needed to
address increasing deficits and successful implementation of the
National Development Plan.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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